ROCKY MOUNTAIN HOUSE, Alta. – Financing a diversified livestock operation is still considered a high risk venture by most lenders.
Whether going directly to a bank or working with a government lender like Farm Credit Corp., there are specific criteria expected before anyone advances a dime. Lenders recently outlined what they can do for alternative livestock farms during a conference at Rocky Mountain House, Alta.
Money has loosened up for some ventures such as bison because they are considered similar to cattle, but other species require some solid assets and cash from the borrower. Lenders also want a personal credit bureau report.
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“Just being able to pay your debts isn’t good enough anymore. We look for a surplus margin in case anything goes wrong,” said Leroy Ehnes of the Toronto Dominion Bank in Red Deer, Alta.
“The message is always talk to the lender well in advance,” said Ehnes.
Plenty of planning is required before walking into the banker’s office. A borrower must research the industry and show how the products are marketed. A business plan and cash flow projection are necessities.
In Alberta, the agriculture department offers help in writing a plan. It should detail industry experience, farm knowledge, equity and personal cash available to inject into the project, as well as details about resources to fall back on if the market goes sour.
Bankers look at the ability to repay under standard market cycles. They want to know a farmer’s debt level and amount of equity, cash flow and debt service capacity.
If the cash flow is seasonal, the borrower likely needs an operating loan. A bank is likely to provide operating loans for bison and elk but probably not for a deer farm. In fact, the more specialized the operation, the more the bank wants to reduce its risk, said Ehnes.
There are provincial and federal programs as well as direct bank loans. The government lenders are more generous than banks, but the borrower must meet more stringent criteria to qualify.
Under the farm development program offered by Alberta Financial Services Corp., a farmer can borrow for farm equipment, cattle, elk, bison and other livestock, but deer are excluded. This is scheduled to change, said Ehnes. The program cannot be used for feeder livestock.
A lender has sole discretion as to whether a request is acceptable.
“We may get somebody who decides to pay an exorbitant amount for an animal and we may feel it is not prudent and decline to finance it,” said Ehnes.
The individual is responsible for the debt regardless of the security taken for these loans.
“Never be under the impression, unless you have it in writing, if you give us 20 elk for security that’s all you have to do and you can just walk away,” said Ehnes.
The maximum for the provincial farm development loan is $100,000 and the borrower must be an Alberta resident and a producer of primary products. The government will ask for a balance sheet listing liabilities and assets, which takes a lot of guesswork out of assessing equity, said Dave Mikalson, of Alberta Financial Services Corp.
The borrower must be a bona fide farmer and show he is serious about the project. The corporation will not lend to people off the street who decide they want to be bison farmers. Young adults can borrow from the government but have to show there will be family support.
Often the lender of last resort, provincial loans carry stringent criteria, said Mikalson. The corporation makes the loans and the borrower has to find a bank to accept the guarantee. If the loan is in default, the government collects by seizing property or forcing a dispersal of property.
